The presentation highlights the impact on MAT (Book profit) due adjustments of IND AS.

1. IMPACT OF IND AS
ON MAT
COMPUTATION
Presented By
CA. Atishay Khasgiwala

2. INTERNATIONAL VIEW ON IMPACT OF IFRS
ON TAX COMPUTATION
Taxable profit is principally based on the legal entity statutory accounts, with adjustments in local tax law
UK Brazil
Nether-landsKorea
• Separatetaxlegislationthatdeals
withIFRS conversion
• Computationofincomeis
prepared basedondomestic
taxlaws andIFRS adjustments
are ignored
• IFRS adjustmentsaretobe
ignored
• Taxcomputationgovernedby
local tax laws
• Annualaccountsis prepared
onthe basis ofDutchGAAP,
taxreturnis basedonthese
financialsand takinginto
accountbusiness principles
• Taxrulesarelargely basedon
GAAP. As thenumberof
differences betweenIFRS and
GAAPincrease, thenumberof
adjustmentsrequired
increases

3. Format of Profit & loss
under Ind AS

4. IND AS FINANCIAL STATEMENTS
A complete set of financial statements under Ind AS includes the following:
1. Balance sheet at the end of the period
2. Statement of profit and loss for the period
3. Statement of changes in equity for the period
4. Statement of cash flows for the period; notes, comprising a summary of significant
accounting policies and other explanatory information.
5. Comparative financial information in respect of the preceding period as specified
6. Balance sheet as at the beginning of the preceding period when an entity applies an
accounting policy retrospectively or makes a retrospective restatement of items in its
financial statements, or when it reclassifies items in its financial statements having an
impact on the balance sheet as at the beginning of the preceding period

5. FORMAT OF IND AS PROFIT & LOSS ACCOUNT
Statement of Profit and loss account
Revenue
Revenue from Operations
Other income
Total Income from operations
Expenses
Cost of Materials consumed
Excise duty
Purchase of stock-in-trade
Changes in inventories of finished goods, stock-in-trade and work-in-progress
Employee Benefit expenses
Finance cost
Depreciation and Amortization expenses
Other expenses
Total Expenses

6. Statement of Profit and loss account (cont..)
Profit before tax
Tax expense
(i) current tax
(ii) Deferred tax
Profit (Loss) for the period from continuing operations
Profit/(loss) from discontinued operations
Tax expense of discontinued operations
Profit/(loss) from Discontinued operations(after tax)
Profit/(loss) for the period
Other comprehensive Income
A. (i) Items that will not be reclassified to profit or loss (revaluation, re-
measurement of defined benefit plan etc.)
(ii) Income tax relating to items that will not be reclassified to profit or loss
B. (i) Items that will be reclassified to profit or loss (exchange difference in
translation of financial statement of foreign operations)
(ii) Income tax relating to items that will be reclassified to profit or loss
Total comprehensive income for the period

7. Interplay between Ind AS and
Income Tax

8. Interplay between Ind AS and Income Tax
Accounting
under Ind AS
Impact on MAT
Guidance under
section 115JB
Specific
adjustment as
prescribed to be
made as per
circular 24/2017
Impact under
normal provision of
Income tax Act
Treatment
covered under
ICDS or Act
Follow treatment as
per ICDS or Act
Treatment neither
covered by ICDS
nor Act
Interpret using
Judicial precedents

9. Interplay between Ind AS and Income Tax
Issue 1:
If Ind AS results in notional income or expenses to be recognized in statement of profit and
loss account and there is no specific guidance under Act/ICDS what treatment to be adopted?
Solution:
The SC vindicated this position in the case of C.I.T. v. Shoorji Vallabhdas & Co. holding
as under –
Where, the income can be said not to have resulted at all, there is obviously neither
accrual nor receipt of income, even though an entry to that effect might, in certain
circumstances, have been made in the books of account.“
Thus, based on above argument it is possible to say that Notional Income or
notional expenses cannot be taxed or allowed under Income Tax.

10. Interplay between Ind AS and Income Tax
Issue 2:
Can assessee choose one method for accounting and a different method for tax purposes?
Possible Views subject to ICDS specific adjustments:
View 1 : The assessee has option to choose ICAI AS for taxation purpose
View 2 : The assessee company has to mandatorily follow Ind AS for taxation purpose
Analysis:
Under Income Tax Act, Section 44AA and 44AB takes care of requirement to maintain
books of accounts and tax Audit.
Landmark Judgment of Supreme court in United commercial Bank vs CIT held
that
 books of accounts prepared in statutory form may not be decisive and conclusive in
determining real income.
 Preparation of the balance sheet in accordance with the statutory provision would not
disentitle the assessee in submitting income tax return on the real taxable income.
 Further, companies act cannot override taxability based on accounting.
 Thus, if real taxable income can be obtained from ICAI AS, one may opt for same.

11. IND AS & MAT
PROVISION AS PER SUB SEC (2A) OF SEC 115JB OF IT ACT
• Sub-section (2A) of section 115JB provides for following Ind AS
adjustment to Book profit for person required to prepare accounts as
per Ind AS.
• 1. Amount credited to OCI
under the head “"Items that will
not be re-classified to profit or
loss“ except:
• -revaluation surplus as
specified; or
• -gains or losses from equity
instruments designated at
FVTOCI as per Ind AS 109
• 2. One-fifth of the transition
amount if positive for first 5
years of Ind AS
• 1. Amount debited to OCI under
the head “"Items that will not be
re-classified to profit or loss“
• 2. One-fifth of the transition
amount if negative for first 5
years of Ind AS
Aggregate
amount
adjusted in
other
equity
capital
reserve &
securities
premium
Transition
Amount

12. Practical Corporate Tax
Issues under Ind AS

13. Practical Issues under Ind AS
In the books of Parent
Loan to Subsidiary account 100
To Bank account 100
In the books of Parent
Bank account 7
To Interest income 7
Issue 4 : Loan to Subsidiaries at less than market rate
IGAAP
Accounting of loan to subsidiaries as per AS
Accounting of interest income (yearly)

14. Practical Issues under Ind AS
In the books of Parent
Loan to Subsidiary account 90
Investment in Subsidiary account 10
To Bank account 100
In the books of Parent
Loan to Subsidiary account 10
To Interest income 10
Issue 4 : Loan to Subsidiaries at less than market rate
Ind AS
Accounting of loan to subsidiaries as per
Loan given to subsidiaries is divided into two parts:
1. Loan amount i.e. fair value of loan as per market rate e.g. 90
2. Investment amount i.e. Differential value based on fair valuation on inception of loan e.g. 10
Accounting of interest income (yearly)

15. Practical Issues under Ind AS
Accounting of interest income till transition date
In the books of Parent
Investment in Subsidiary account 10
To Loan to Subsidiary account 10
In the books of Parent
Loan to Subsidiary account 3
To Retained earning account (other equity) 3
Tax implications under MAT
• Amount of 3 credited to retained earnings taxable over 5 years from FY 2016-17
• The parent company should get a step up of 10 for cost of investment in subsidiary which
is available at the time of sale of investment
• Interest Income will be considered in book profit
Normal Tax
• A view can be taken that Notional Interest income credited to profit and loss account
should not be taxed.
Issue 4 : Loan to Subsidiaries at less than market rate
Transition to Ind AS
Accounting of loan to subsidiaries on Transition to Ind AS

16. Practical Issues under Ind AS
Issue 5: Fair Value of Investment
MAT implications
Book profit
includes year on
year Gain of
FVTPL items
1/5th of gain on
transition amount
included in book
profit
FVTPL
Year on year gain
included in book
profit in the year
disposal
Gain on transition
amount included
in book profit in
the year on
disposal
FVTOCI
Normal Taxation
Taxed under the head Capital gains based on specific
treatment as per Act

17. Practical Issues under Ind AS
Issue 6: Free service on sales
Example:
Sale of Goods – INR 100,000
Free service on same – 4 services of INR 1000 each (cost for service is INR 800)
Accounting under IGAAP
Debtors account 100,000
To Sales revenue account 100,000
Accounting under Ind AS
Debtors account 100,000
To Sales revenue account 96,000
To Deferred revenue account 4,000
On date of free service claim, deferred revenue account will be debited and transferred
to sales revenue account.

18. Practical Issues under Ind AS
Issue 6: Free service on sales
Treatment under Tax
• ICDS IV on revenue recognition does not mandate splitting up of revenue between services
and goods. Thus, entire 100,000 is taxable under normal tax as well as under MAT
provisions.
Issue 7 : Provision for services made in books can be claimed
Provision for services
Expense account 3,200
To Provision for expense account 3,200
As per ICDS – X as well as in Hon’ble Supreme Court Judgment of Rotork Controls India
Private Limited, the same is allowed subject to same not being ad-hoc and created on some
scientific basis.

19. Practical Issues under Ind AS
Accounting under IGAAP
Expense account 100
To Provision account 100
Accounting under Ind AS for creation of provision
Expense account 90
To Provision account 90
Accounting under Ind AS for interest charge YoY
Interest account 4
To Provision account 4
Whether for tax computation, provision to be considered at discounted value
or at the original value (i.e. Without considering the discounted factor)
Issue 8: Provisions under Ind AS
• Ind AS 37 mandates creation of provision considering time value of money.
• Discounting of provisions is required in such a scenario.

20. Practical Issues under Ind AS
Issue 8: Provisions under Ind AS
Possible solution
ICDS X provides
that provision
should not be
discounted
Hon’ble SC
Judgment of Rotork
Controls India
Private Limited read
with ICDS X shall be
allowed
Normal
Tax Discounted value
will be allowed on
creation of provision
for ascertained
liabilities
Interest charge
debited YoY shall be
allowed in said year
MAT

21. Practical Issues under Ind AS
Issue 9: Loan processing fees
• Under the previous IGAAP, loan processing fees related to loans taken were debited to the
profit and loss account on payment basis.
• Under Ind AS the same is required to be amortized based on EIR method.
Accounting
Accounting under IGAAP
Loan processing fee account XX
To Bank account XX
Accounting under Ind AS
FC Loan account XX
To Bank account XX
Accounting under Ind AS subsequently
Interest account XX
To FC loan account XX

22. Practical Issues under Ind AS
Issue 9: Loan processing fees
If amount has already been debited till transition date. Then entry in books for unamortized
portion shall be:
Accounting on transition date
FC loan account XX
To retained earning account XX
Normal Tax
•Loan processing fees can be considered
allowable considering section 2(28A) read
with section 36(1)(iii)
•Consider treatment of ICDS-IX
•Once taken as allowable in year of
incurrence, amortization should be
disallowed.
•Reduction in liability of FC loan won’t
impact. However, if tax department adds
the said amount, the same can be claimed
in year of amortization.
MAT
•Increase in Retained earning on transition
shall be included in book profit by 1/5th of
amount.
•Year on year charge of interest shall be
allowed as deduction in book profit.
•No implication on reduction of FC loan as
it does not impact profit and loss account

23. Practical Issues under Ind AS
Issue 10: Defined benefit plan
Actuarial gain/loss on defined benefit plan
Treatment in IGAAP Amount
Current service cost 50
Actuarial (gain)/loss 50
Net debited to profit and loss account 100
Treatment in Ind AS Amount
Items routed through profit and loss
Current service cost 50
Items routed through OCI that will never be
re-classified to profit and loss
Actuarial (gain)/loss 50
• Allowed as deduction under MAT
• Allowed under normal tax subject to section 43B and relevant section governing such cost.
• For transition amount, as the same would already have been taken as deduction earlier, it
should not be taken in computation of same else it will result in double deduction.

24. Practical Issues under Ind AS
Issue 11: Proposed Dividend
• As per Ind AS, proposed dividend up to transition period is to be reversed since dividend as
per Ind AS is recognized in the year of payment of dividend as compared to declaration of
dividend under IGAAP.
• On transition to Ind AS, following entry to be passed:
Accounting on transition date
Proposed Dividend XX
To retained earning account (other equity) XX
Normal Tax
•Dividend is not allowed as deduction
•This is post tax item, entails DDT for
domestic company.
MAT
•Dividend is not allowed as deduction in
computing book profit.
•However, the amount of proposed
dividend in year of transition shall be
included in other equity as a part of
transition amount.
•Thus, without any specific exclusion under
115JB it need to be offered to tax.
Representation has been made to CBDT and clarification is awaited.

25. Issue/Topic ICDS AS Ind AS
Issue 12: Inventories –
deferred settlement
terms.
Not specifically covered
under ICDS.
Not covered specifically Difference between
normal purchase price
and deferred settlement
purchase price is
recognized as Interest.
Issue 13: Inventories –
allocation
of fixed production
Overheads
Allocation of fixed
production overheads is
based on normal capacity.
The actual level of
production should be
used, if it approximates
normal capacity.
The actual level of
production may be used,
if it approximates normal
capacity.
Same as AS
Issue 14: Interest
Income
Interest shall accrue on
time basis.
Interest accrues, in most
circumstances, on the
time Basis.
Interest shall be
calculated by using the
effective interest rate
method (EIR).
Issue15: Property, Plant
and Equipment –
estimated
costs of dismantling,
removing or restoring
Not covered by ICDS. No such requirement. The initial estimate of the
costs of dismantling and
removing the item and
restoring the site on
which it is located is
required to be included in
the cost of the respective
item of property, plant
and equipment.
Practical Issues under Ind AS

26. Issue 16: Interest-free loans
In the case of an interest-free loan, the off-market component (consideration received minus the present
value of the loan) would be credited to other equity and, therefore, would be included in transition
amount. The unwinding of interest would get debited to profit and loss and would consequently be
deductible for MAT purposes. Therefore, on an aggregate level, the treatment would be tax neutral. This
is further explained by means of a numerical example:
Parent A has given an interest-free loan of 10,000 INR to its subsidiary on 31 March 2016. The loan is
repayable at the end of three years and the fair value of the loan on initial recognition is 8,640 INR,
assuming a market rate of interest of 5%.
In this example, the equity component of 1,360 INR would be included in transition amount. This
transition amount would be included in book profit equally (1,360/5 = 272) over a period of five years
starting from the year of first-time adoption of Ind AS (2016–17). The interest on such a loan shall be
recognised based on the effective interest method over the tenure of the loan and, therefore, the total
interest cost of 1,360 INR (432+454+474) would affect the book profits of three years. On an overall basis,
such an instrument would be tax neutral for the purpose of MAT computation.
LIABILITY EQUITY COMPONENT TOTAL
Initial recognition 8,640 1,360 10,000
Year 1 – Interest 432
Year 2- Interest 454
Year 3 – Interest 474
Repayment (10,000)

27. Issue 17: Compulsorily convertible (fixed-for-fixed) instrument with mandatory coupons
In the case of an instrument that is convertible into a fixed number of equity shares which meet the
definition of equity but carry mandatory coupons/dividends during the life of the instrument, only the
present value of the mandatory coupons/ dividends would be classified as a liability and the majority of
the component would be classified as equity. In such a situation, the amount credited to other equity as
on the date of transition would be included in transition amount. However, the unwinding of interest
would be a marginal amount as compared to the equity component. In such cases, it appears that there
would be a mismatch between the amounts credited to other equity and included in transition amount
and the amount that can be claimed as an interest expense. Such instruments are not expected to
be tax neutral for the purpose of MAT computation. This is further explained by means of a numerical
example:
Entity A has issued 1,000 8 % compulsorily convertible debentures of 10 INR each on
31 March 2016. These debentures are convertible into 1,000 equity shares at the end of three years.
Interest is mandatorily payable on an annual basis. In this example, the equity component of 7,938 would
be included in transition amount.
Applying the CBDT’s clarification, this transition amount shall be included in book profit equally (7,938/5 =
1,587) over a period of five years starting from the year of first-time adoption of Ind AS (2016–17).
However, the interest on the liability component shall be recognised using the effective interest method
over the tenure of the instrument, resulting in a total interest cost of 338 INR (165+114+59) and impacting
book profits over a period of three years. Accordingly, on an overall basis, accounting for such an
instrument based on the CBDT clarification would not result in a tax-neutral position for the purpose of
MAT computation.

28. Questions ???
38
CA Kinjesh Thakkar

29. 39
Thank You
FCA, Forensic Auditor, Master in Business Finance
Contact No: +91 9770067763
E-mail ID: associates.atishay@gmail.com
Atishay Khasgiwala
CA. Atishay Khasgiwala
The views presented in PPT are personal and subject to changes in law from time to time. It is
advisable to consult the consultant before taking any action.